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This biotech growth stock has soared in the coronavirus pandemic. Here’s what you need to know

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I’ve had Oxford Biomedica (LSE: OXB) on my watchlist for some time now. By 2018, it had achieved a key milestone for a biotechnology growth stock — it recorded a profit. But early investor enthusiasm waned, and since a peak that year, the Oxford Biomedica share price has fallen back by around 20%.

The initial profitability has not been repeated yet, and 2019 saw a return to loss and cash burn. The firm needed further funding, raising £40m from a placing as recently as June 2020.

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Forecasts suggest a further, albeit smaller, loss for the current year. But the Covid-19 pandemic has given the shares a new lease of life. They’re up 30% so far in 2020, after an initial sharp dip when the crisis first struck.

New growth stock phase?

Oxford Biomedica bills itself as “a leading gene and cell therapy group” and it partners with such pharmaceutical giants as AstraZeneca. AZN is big on Covid-19 research, with its vaccine trial currently in the news. So that’s where the tie-up for Oxford Biomedica comes in, and its technology could make it a serious long-term growth stock.

The first half of the year saw Oxford Biomedica’s revenue grow by 6% to £34m. And key sources of income like licences and royalties are rising. But it’s still ploughing lots of cash into R&D, with operating expenses up 41% in the period.

In the early days, when a growth stock turns to profit, it can often pay to wait until that profitability is sustainable. Forecasts suggest a 2021 profit for Oxford Biomedica. And with revenue growing strongly, I can see further earnings growth ahead. If that happens, 2020 could turn out to be a great time to buy.

Health recovery?

Spire Healthcare (LSE: SPI), meanwhile, has been having a terrible time. The hospital group was previously seen as a growth stock, based on its cancer care specialism. But after three years of falling earnings, the dividend has been slashed and the share price has crashed.

Since the start of 2020, Spire Healthcare shares are down 33%. Over the past five years, we’re looking at a 75% fall. And analysts are forecasting a loss for the current year. But they have a return to profit pencilled in for 2021 — and they’re even predicting a return to dividend growth.

Headline figures for the first half don’t look great. Revenue fell 18.2%, and Spire recorded a pre-tax loss of £231.3m. But that includes a chunk of one-offs, and the company puts adjusted EBITDA at a positive £61.6m.

Outlook

The balance sheet looks comfortable enough, with net bank debt improving by 8.7% to £330.6m. But what’s the outlook like?

The company said: “There has been a return of private activity since lockdown and there is significant national unmet demand for both private and NHS procedures. Subject to any significant change in the Covid environment, the board anticipates trading returning to 2019 levels in 2021.

If that’s the start of a new earnings growth phase, we could be looking at two long-term growth stocks here.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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